DG Khan Cement (DGKC) has posted unconsolidated NPAT of PKR1.4bn (EPS: PKR3.29) in 3QFY22, up 14% qoq but down 30% yoy. The result has come in higher than our EPS estimate of PKR1.93, where the deviation largely stemmed from higher-than-expected gross margins amid better retention prices. The result takes 9MFY22 NPAT to PKR3.6bn (EPS: PKR8.26), up 27% yoy.
Key highlights of 3QFY22 result:
Net sales have increased by 46% yoy but down 3% qoq to PKR15.9bn. We expected net sales of PKR15.3bn; the deviation is due to higher-than-expected retention prices.
Gross margins have clocked in at 18.6% (down 4.2ppt yoy but up 1.6ppt qoq), much higher than our estimate of 14%. Despite the surge in international coal prices, margins held up reasonably well. This is majorly attributed to efficient procurement of coal and significant quantity of clinker inventory, in our view
Other income has increased to PKR667mn, down 60% yoy and 11% qoq. The yoy decline is due to a one-off dividend income received from MCB amid easing of SBP’s dividend moratorium on banks during the Covid-19 lockdowns.
Among other line items: (i) Finance cost has increased by 32% yoy to PKR916mn, due to increase in interest rates and short term borrowings, (ii) distribution expenses have declined by 27% qoq owing to lower exports during 3Q, and (iii) effective tax rate during the quarter is reported at 26% vs. 23% in 3QFY21.
Despite the significant rise in cost pressures, DGKC has posted decent quarterly margins and earnings, primarily due to better coal inventory management and higher clinker inventory being carried forward from the last quarter at lower coal prices. Moving forward, higher local demand and likely increase in local prices may offset elevated coal prices to keep the bottom line stable across the next few quarters. We have a Buy rating on DGKC with a June 2023 TP of PKR96/sh.